Editor's note: This contribution by the late journalist I.F. Stone first appeared in our January 1975 magazine.
August 10, 2005
Alan Greenspan seems set on slowing down this uneven economic recovery, as the Fed raised interest rates yet again on Tuesday and signaled that there are more to come.
At some point soon, these increased rates will prick the housing bubble and will make corporate borrowing so expensive that it will curb growth.
But Greenspan wants to slow growth down because he’s still trying to slay the phantom dragon of inflation.
The core rate of inflation, however, is only about 2 percent. It is not a threat to the economy. But bankers don’t like inflation, because it eats away at the money they make on their fixed loans, and Greenspan views his job as protecting the financial sector of the economy, above all.
So he’s perfectly content with unemployment at 5 percent. In fact, he doesn’t want it to dip much below that.
“Politically, they’re not going to come out and say, ‘We don’t want to see unemployment come down any more.’ But I think what they would like to see is an economy that grows just fast enough to keep unemployment stable,” explained Maury N. Harris, a top economist at UBS, in The New York Times.
And Greenspan is perfectly content with unit labor costs barely rising in the second quarter--“at an annual pace of just 1.3 percent,” as the Times article noted. That’s not even keeping pace with inflation.
But Greenspan may have been alarmed by the 0.4 percent increase in hourly wages in July, which would amount to a 4.8 percent annual wage boost.
Can’t have that!
Greenspan fears that if the economy cooks any hotter, labor markets will tighten, workers will get more leverage, they’ll finally be in a position to demand higher wages, and either companies will pass the costs on to consumers and inflation will go up, which the banks don’t like, or the companies will have to absorb the increases, which they don’t like.
Alan Greenspan and the Fed are their enforcers.
Greenspan runs the economy for Wall Street and the big corporations, not for people who are out of work, not for people who are making minimum wage, not for people who haven’t seen a decent salary boost for years.
Their health is merely incidental.
And if they get too healthy, Greenspan won’t stand for it.